NGOs are great at demanding transparency. They’re not so hot at providing it.

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By Nives Dolšakand

Aseem Prakash

February 22, 2016

Justice Louis Brandeis famously claimed that sunlight is the best disinfectant. In recent years, “transparency” has become a buzz word, closely synonymous with good governance. Non-governmental organizations are in the forefront of the transparency movement, celebrating heroes such as Edward Snowden. Right-to-information laws have proliferated across the world. Journals demand transparency from scholars about their funding sources. Hillary Clinton is under pressure to reveal the content of her paid speeches to the Wall Street.

Yet there is a question that most NGOs, however fearless, tend to be less interested in answering: Where do they get their money from? When NGOs are asked about it, as an ongoing debate in Israel reveals, they become indignant.

Political science insights can help us understand why the love affair with NGOs has soured. While they were once considered trustworthy and exempt from transparency demands, they are now being held to transparency and accountability standards commonly expected from governments and firms.

While arguments about the importance of civil society in democracies go back as far as Tocqueville, NGOs really came to prominence as social and political actors with the collapse of the Soviet Union. Although the old socialist statist model had failed, market systems also performed poorly in many developing countries, as shown by the dismal record of the International Monetary Fund’s so-called ‘structural adjustment policies.’

Many concluded that developing countries suffered from the “twin failure” problem, of market and state failure tied up together. Consequently, scholars and policymakers began looking for another institutional mechanism to promote good governance. This is where the NGOs/nonprofits/civil society sector came in. Academics saw NGOs as a magic bullet solution to governance challenges that avoided the problems of both markets and states.

What was the logic of putting faith in NGOs? First, academics saw NGOs fostering communitarian, face-to-face interactions that generated social capital, and hence supported well-functioning states and markets. Others described NGOs as principled actors, without the selfish motivations of firms. Some others suggested that NGOs could be trusted (while firms could not), because NGOs could not legally distribute profits to their owners. Given these assumptions, why would anyone ask to look at NGOs’ books? After all, they were virtuous by definition. Working with this logic, academics began transforming NGOs from an analytic category to an idealized ideology.

All of this academic support helped encourage Western donors including governments, intergovernmental organizations, and big foundations (which often look to academia for guidance) to begin pumping funds into developing countries with the hope of creating vibrant civil societies. The idea was that civil society could be “purchased” with Western funds, a fallacious deployment of the market logic to create civil society.

Furthermore, donors began funding NGOs indirectly by routing their monies via them, instead of via “corrupt” domestic governments. By some estimates, about one-fifth the international aid is now routed through the NGO sector. The 2014 Global Humanitarian Assistance Report puts this at 18 percent of total international aid. At the level of bilateral assistance programs, the OECD puts the number at 19 percent for the UK and 23 percent for the U.S.

Unfortunately, the narrative of the saintly NGO turned out to be false once money came into the picture. An abundance of resources, low barriers to entry and lax oversight was bound to attract bad apples, and create perverse incentives for the good ones to behave badly. NGOs soon became a thriving industry drawing sustenance from foreign aid.

Not surprisingly, media reports on NGO scandals and financial mismanagement began emerging, posing considerable challenges to the “principled actor” narrative. Some scandals were truly shocking, such as Somaly Mam or the cases cited in John Oliver’s show on the corruption of religious nonprofits.

This led revisionist scholars to question claims about the grassroots character of NGOs. They saw NGOs depending on overseas funds and lacking domestic support. Furthermore, instead of building social capital, the foreign-funded NGOs were crowding out real grassroots NGOs, leading to the “NGOization” of the civil society sector. Some scholars saw the aid-dependent NGO sector as instruments of foreign interference in domestic politics. Alternatively, they saw them as new missionaries, looking to protect developing countries from themselves, a strategy that developing countries have had some experience with.

In challenging claims about NGO uniqueness, the revisionists portrayed NGOs as regular organizations that respond to normative and instrumental concerns, and have their share of good and bad apples. This implies that NGOs should not be given a free pass on accountability and transparency.

The real world seems to have responded to the revisionist narratives. Donors are no longer willing to simply “trust” NGOs. They want to see evidence that NGOs use their resources efficiently and effectively. A new class of information brokers has emerged to help citizen donors differentiate between the good and the bad NGOs. For example, Charity Navigator rates NGOs in order to establish “a more efficient and responsive philanthropic marketplace.” Yet, in the context of big donors, the “accountability talk” is leading to a new set of problems where NGOs are prioritizing accountability to big donors over accountability to their recipients.

NGOs themselves recognize the problems in the “principled actor” narrative. Very much like firms, they are now establishing and voluntarily joining self-regulatory mechanisms that identify best management practices – and sometimes submit themselves to outside audits. Such programs have proliferated across the world. Even governments now encourage NGOs to commit to such self-regulatory programs – similar to governmental efforts to encourage firms to do so in environmental issues.

The bottom line is that citizens and governments no longer buy the narratives that NGOs are automatically principled and trustworthy, and should therefore be exempt from transparency requirements. NGOs should also recognize (and some do) that they will now be judged on criteria they have used to pass judgment on others.

This should be good news for all: If NGOs are principled and virtuous and have nothing to hide, they should welcome the demand for full disclosure. Citizens can then decide whether or not the infusion of foreign monies in NGOs serves the public good.

Nives Dolšak is professor in the School of Marine and Environmental Affairs at the University of Washington at Seattle.

Aseem Prakash is professor of political science, Walker Family Professor, and the director of the Center for Environmental Politics at University of Washington at Seattle.